Property development means lots of things to different people. This article will consider a wide range of aspects of property development from a very superficial property makeover through to complete home renovations through to splitter blocks and small subdivisions and residential developments, right through to large commercial developments.
Firstly, looking at an uplift strategy as predominantly a property investment strategy. This is the first step into the property development arena. This strategy would be applied either to your own home, your primary place of residence, or for a property that you’ve purchased specifically with the intention to renovate. It includes undertaking cosmetic upgrades such as painting, resurfacing of some areas and modernising a kitchen or bathroom. Improvements can be made to external areas through landscaping, fencing and general street appeal. These tasks can generally be undertaken by an everyday person; they’re relatively inexpensive and they should increase the immediate capital value for more than the cost incurred to complete them.
These updates will appeal to a purchaser who either doesn’t have the time or doesn’t have the inclination to complete these updates but they’re looking for a more modern appearance to their new home, so are more likely to pay a premium for the convenience. It also makes the home more appealing to a wider range of people, so demand and competition can help to drive the sale price higher as well.
A little more challenging is to undertake a structural change or an extension to the existing dwelling to better utilise the rooms or provide a larger, more spacious dwelling. Again, these could be retained as part of a wealth strategy or on-sold in the future. Timing is always important, as the profitability of an uplifted property can be somewhat dependent on the activity in the overall market.
The next step for a property development strategy would be to consider a splitter block. A splitter block is one that is a larger sized residential block that can be subdivided, or split, into two smaller blocks, for example an 810 m2 block could be subdivided into two 405 m2 blocks. These blocks may be one behind the other with an easement down the side to access the rear block. In Australia, these are referred to as battleaxe blocks. Alternatively, it could be split down the centre and have two narrow blocks. A dwelling is constructed on each of the new smaller blocks and sold with separate ownership titles. If there is an existing dwelling on the property, it is ideal if it is fully on one half of the block to avoid additional expenses of relocating the property or demolition.
There are a number of considerations for splitter blocks. Firstly, local council zoning would need to be considered to determine whether a smaller block size is acceptable in that area. Zoning criteria vary greatly between suburbs, councils and locations, so checking these is a critical first step. Town planning approval is required for this to proceed. Once completed, the original owner could decide to keep one and sell off the split block; keep both and rent both or live in one and rent the other; or sell both. The split blocks can be sold with a dwelling or as vacant land.
If the owner of a large block did not want to pursue the subdivision process, subject to council approval, a 2nd dwelling may be able to be built on the same block and either rented separately or sold as is, on one title because they share the same titled block. The individual dwellings may stand-alone or share connecting walls and in the future one can pursue a subdivision.
A slightly larger, but still considered boutique project would be a larger (eg 1500-4047 m2) block. This may be in the form of a series of smaller adjacent blocks totaling required area. On such a block, a series of townhomes or villas could be constructed, or even multi-storey apartment blocks. The number of storeys permitted would be determined by the stipulations in the zoning criteria.
Large residential developments, which include the construction of roads and ensuring services are available, are usually undertaken by large companies who specialise in such projects. Similarly, commercial or industrial developments usually require specialist knowledge and professional expertise to ensure that all stages are fully compliant with legislation. They could only be considered if the zoning is appropriate or could be re-zoned accordingly.
As well as these options, there are interim opportunities at each stage. This would involve the original owner/developer undertaking all the preparation work, such as feasibility, applications and approvals and budget. These processes provide value to a purchaser who wishes to proceed with minimal delays. Having completed the preparation work, the property can be sold for a premium allowing for relatively quick profitability and cash-flow.
Once you have considered which of the options is best suited to your investment or development plans, you will need to implement a sound strategy to see it through to completion.
- Undertake the Council Approval process, if required.
- Determine whether the zoning provides the opportunity to complete your development.
- Consult with your trusted advisors to ensure you have sufficient capital to allow you to complete your project.
- Engage the required contractors.
- Complete the construction or renovation work.
- Decide whether your strategy is to hold and create a rental income or to sell to release capital or a combination.
Whichever way you decide to proceed, due diligence is the most vital step to ensure that the project is viable.